When Rates Are Low, It's Better to Secure a Fixed Rate.
Refinancing isn't always done just to lower the rate or pull out equity in the form of cash. If you buy a house when rates are peaking, chances are that you'll choose an adjustable-rate loan to keep the payments down, and that's most likely a good call.
But when rates begin to drift downward and you have the opportunity to lock in a fixed rate, if you intend to keep the property for several more years, it makes sense to refinance out of an adjustable-rate mortgage and into a fixed-rate one.
When rates begin to drop, the temptation is to follow those rates as low as they can go. This means getting an adjustable-rate mortgage. Resist the urge and secure those low fixed rates.
There Are Ways to Save on Closing Costs When Refinancing That Weren't Available to You When You Bought.
The first person to ask is the lender or broker whom you worked with previously. Call that person first and say, "I'm thinking of refinancing my mortgage. Since you already have my original loan application, I want you to waive your fees."
Most likely, you'll get most, if not all, of the junk fees waived. But you have to ask.
Title insurance is probably the biggest savings. And title insurance can be expensive; in fact, it is one of the most expensive items on the settlement statement. Title insurance is an insurance policy that guarantees to the lender, the sellers, and the buyers that the transfer of property ownership is safe and secure, without any defects such as previous claims on the property, forgery, or fraud.
For example, suppose one party sells a home to another, then one day there's a knock on the door, and it's some guy who says, "Hi. I actually received one-tenth of this house from my grandfather 20 years ago, and I own part of it. It was sold to you illegally, so now please get out of the house," or some such frightening event.
Title insurance is typically issued upon transfer of ownership, and when someone refinances, ownership is not transferred; it's the same owner. Still, a new title insurance policy must be in force with each new loan, refinance or no. There are discounts available for such short-term policies, but often you have to ask.
Title insurance requirements vary from state to state, and so do the discounts that are available. What is eligible for a discount in Texas will be completely different from what is eligible in California.
The most common discount on title insurance is called a reissue, whereby the same owners take out a new policy that covers the time from their original purchase (or last refinance) up until the new refinance loan.
A reissue rate is available, but depending upon where you live, you won't necessarily get it automatically. In fact, in some states where a reissue rate is available, the previous policy must be replaced by another policy from the same insurance company, not a different one.
In still other areas, it is simply necessary to verify that ownership has not changed hands since the original purchase, and any title insurance company can provide the lower-priced policy.
If your title insurance company is holding your closing, acting as your escrow agent, or otherwise providing more than one product or service, ask for a discount on those services.
A title insurance company may have an escrow department that will hold your closing as well as issue title coverage. Or the attorney who is handling your transaction may also supply title insurance or other services that might come at a discount.
Another common savings is with a survey. In many states, lenders require that a survey be completed before a new loan is placed. But what if you already have a survey? Lenders will accept an old survey as long as there were no changes to the property since the original survey was done. Even then, if the survey is older than 10 years, the lender may not take it at all, and a new one will be required.
A survey will show your property lines, where your house sits on the property, fences, sidewalks, decks, and, perhaps most important, easements. An easement is a legal right of a third party, usually a utility or city government, to access your property whenever it sees fit.
A common example is an easement that is granted to a cable television company. If you have one of those cable TV boxes in your backyard, the cable company has a right to access your property whenever it needs to fix something.
Or your survey may show a line going across your backyard, indicating that a utility line is buried beneath the surface.
A survey will also show a swimming pool in your yard, or a storage shed, or a fence. One reason that a lender wants a new survey is that there is no other way to determine whether any changes have been made since your old survey was performed.
Did the electricity company build a new utility line that runs through your backyard? Did you add a fence? A rock wall? Yes, you may have had a survey performed four or five years ago, but it won't resemble the new one if you've made permanent changes to your property. The only ways around this are to have a new survey done or to sign an affidavit stating, "I have not made any changes to the property since the last survey."
It may also be possible to eliminate the need for an appraisal when refinancing. You'll need to ask for this option when you make your application, but there are loan programs that do not require a complete appraisal, but are dependent instead upon the AUS issuing the approval. Freddie Mac loans, for example, have an option for either a reduced appraisal or an exemption. In this case, you could save $300 or more.